Shipowners weighing whether to pay Iran to let their tankers through the Strait of Hormuz now face a much starker choice: do it, and risk losing your insurance cover altogether.
The Lloyd's Market Association (LMA), the trade body behind underwriters in the world's oldest marine insurance market, has drawn up model clause wording that insurers can add to policies letting them cancel a vessel's cover the moment a toll payment for Hormuz passage comes to light. It's guidance for now, not a rule imposed on every policy — but if an insurer adopts it, a shipowner who quietly pays up to get a tanker through the strait could find their cover pulled for that vessel entirely, on the grounds that the payment itself risks breaching US, UK or EU sanctions and terrorism law.
Arabella Ramage, the LMA's legal and regulatory director, said the wording gives the market "a clear contractual position for insurers and insureds" around a problem nobody in the industry particularly wanted to deal with.
The clause exists because Iranian authorities appear to be trying to set up an actual toll system for the strait — one of the most important shipping lanes on the planet, carrying something like a fifth of the world's seaborne oil. A document reportedly seen by Lloyd's List in mid-June set out a proposed scheme for collecting payments from vessels transiting the waterway. That raised an obvious worry in London: owners desperate to keep cargo moving might just quietly pay whatever's being asked rather than divert around Africa.
For underwriters, that's a genuine legal problem, not just an awkward one. Any payment that ends up with an entity like Iran's Islamic Revolutionary Guard Corps — proscribed as a terrorist organisation in both the US and UK — could expose an insurer to sanctions liability, however sympathetic the shipowner's reasoning. The clause basically lets underwriters get out cleanly before that liability becomes theirs.
This lands in the middle of what's already been a brutal few months for marine underwriters. The strait has been effectively closed since February, when US and Israeli strikes on Iranian targets set off what the World Economic Forum called the worst disruption to global maritime trade in decades. Traffic that used to run somewhere around 120-140 vessels a day has, at various points, dropped to single figures — S&P Global logged just ten transits on one Tuesday in July, down from 16 the Monday before.
Then, this week, a second front reopened. Houthi forces struck two Saudi oil tankers, the Encelia and the Layla, days after declaring a naval blockade against Saudi Arabia — reviving a campaign that had gone quiet since last October's Gaza ceasefire. War risk premiums for voyages through the southern Red Sea more than tripled within a week, from around 0.3% of a vessel's hull value to over 1%, with Saudi-linked tankers sailing closer to Yemeni waters quoted as high as 3%, according to Reuters. Insurance Business had already flagged the risk of exactly this back in June, warning that a return to Houthi attacks would leave underwriters managing two live war zones on opposite sides of the Arabian Peninsula at the same time.
The numbers here are wild compared to anything the market saw before this year, though they vary quite a bit depending on the source and the vessel. Hormuz war risk premiums, which sat somewhere around 0.1%-0.2% of hull value before February, have been quoted anywhere from roughly 5% up to 10% at the worst points of the conflict — one Insurance Business analysis put a $150 million tanker's single-voyage war risk bill as high as $7.5 million at the height of it, and that's before the toll question added a further complication.
Marcus Baker, global head of marine, cargo and logistics at Marsh, said rates have been "like a roller coaster mirroring the development of the price of oil" — moving with the news cycle rather than settling anywhere. That unpredictability is its own problem for owners trying to plan routes and budgets more than a week or two out.
The insurance crunch has pulled in the White House too. President Trump promised in a Truth Social post to get the US International Development Finance Corporation to offer, in his words, cover "at a very reasonable price" for maritime trade through the Gulf — a pretty direct shot at Lloyd's position as the traditional home of marine war risk underwriting. That DFC facility has reportedly grown to a $40 billion reinsurance backstop, with Chubb leading underwriting alongside Travelers, Liberty Mutual, Berkshire Hathaway, AIG, Starr and CNA. Whether that public capacity ends up cheaper or more reliable than what Lloyd's syndicates are willing to write, nobody knows yet. But governments don't usually build $40 billion reinsurance facilities unless they're worried London's market might simply price itself out of the war.
None of this actually resolves the problem facing a shipowner staring down a closed strait: divert around the Cape of Good Hope at huge extra cost and delay, pay whatever's being asked to get through, or just sit and wait it out. The new LMA clause doesn't make that choice any easier. It just adds a new cost to one of those options — quietly paying Iran now risks losing cover on the vessel entirely, on top of whatever legal exposure the payment itself creates.
